Tuesday, 27 December 2011

Outrageous predictions for 2012

Business Mirror

A “Black Swan” event is a term coined by author, statistician and (of course) financial-market trader Nassim Nicholas Taleb. It describes an event of great magnitude that no one expected and that has large magnitude and consequences.

As examples, he gives the rise of the Internet, the personal computer, World War I, and the September 11 attacks as examples of Black Swan events.

Each year, the European Saxo Bank publishes its list of Black Swan forecasts called “Outrageous Predictions.” For 2011, some of its predictions were that: Apple would buy Facebook which did not happen, perhaps in part because of Steven Jobs’s ill health. It forecast that the price of natural gas would surge 50 percent when in fact the price fell like a rock in 2011 as new and cheap discoveries primarily in the US came on line.

However, Saxo did call the price rise in gold going to $1,800 correctly and the fall of US interest rates on the 30-year Treasury debt falling to 3 percent.

So what is Saxo saying about 2012?

First, the world ending in 2012 is not on Saxo’s list, although I suppose this would be the ultimate Black Swan event. What Saxo does call for is for the price of Apple stock to decrease by 50 percent. For US stock-market players, this would be very significant as Apple would probably be forced to go on a corporate-buying binge looking at many tech and Internet companies to prop up its bottom line. Saxo expects Apple to lose market shares as there are now several good competitors in the smartphone market.

Of course, that has nothing to do with us in the Philippines but is interesting, nonetheless.

Another of its predictions does affect PHL. Wheat prices are projected to double in 2012 as the wheat harvest is 2011 was very poor. Prices should reach levels last seen in 2008. My “White Swan” (a likely event) prediction is that the government will tell us that they are doing everything possible to stop the “unexpected” rise in the price of bread and pan de sal. The “pro-poor” groups will say the greedy bakers are to blame.

Here is a prediction that no one expects to happen but if it does, watch out. The European Union will declare an extended bank holiday during 2012 with all banks and stock markets closed for a week or more.

The European Central bank has just pumped $800 billion into its banking system. It is not nearly enough. In February another $800 billion is planned to be loaded into EU economy.

Remember that the US tried the same thing in 2009 and 2010 with virtually no improvement in its economy. However, taken as a whole, Europe is in much worse shape, economic-growth wise, than the US.

If this stimulus does not help and help within one or two quarters, Europe will be in a recession and have many major failing banks. Stock markets everywhere will take a large hit if there is a bank holiday.

The Philippine Stock Exchange is going to reach 4,800 to 5,000. I am 60-percent confident of that. But you cannot put your stock investments on autopilot in these troubled times. You must be constantly updated with the right information.

If this Black Swan swims in during 2012, the US dollar will go through the roof and the PHL peso will fall on a daily basis the way it did back when Cory Aquino was President. I remember 10-percent daily fluctuations back in the late 1980s.

If that happens, oil prices will go up proportionally. Again, this will all be “unexpected” by the government experts, so you personally need to be prepared.

What are some potential Black Swan events for the Philippines?

I asked a few people and the one answer that was the most frightening and least likely was the death of some leading political figure. Some described this as a natural death, others as not-so-natural.

The others mentioned were mostly natural disasters­—volcanic eruptions, floods, and the like.

Understand again, these are potential Black Swans that probably will not happen. But you must be prepared for the unexpected. However, more important is to be prepared for what the probable future will be.

What events both good and bad can we expect to happen in the Philippines during 2012 and how do we plan for them? We will talk about some White Swan events on Thursday.

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